What is your biggest investment mistakes?

[Mikenhe]

in my first chunk of money available for investment I let a broker talk me out of putting 30% into FFH (at $130) and use half of it for Lehman Bros instead.

 

lesson one - do your own research.

 

FTR and ATPG

both under researched and overconfident. expensive lessons..

 

one great lesson - do the reading here.. try to work out who knows a particular sector/ company and then do your own research. Its your money - get comfortable with where you are putting it...

 

 

and my biggest miss - I had MasterCard pegged as my next investment at $200.. and it was around that price for nearly a year - but I procrastinated on getting rid of other shares to fund it.  its currently $681....

[rkbabang]

My worst mistakes were before I discovered value investing.  I graduated from college in 1996, got a job and starting investing in tech stocks.  I think you know how this ends.

 

[enoch01]

Largest percentage hit to my port: FMD, 2007.  Beware of buying a "financial intermediary" during a huge credit bubble.  I paid too high a price for a company in the middle of the boom.

 

Largest percentage decline of individual holding: Dime Warrants, late 2011.  Beware of relying on a judge's ruling for your position not to go to $0.00.

[Guest longinvestor]

Not buying enough. Many times but the costliest ones were,

 

1) I worked for Danaher(DHR) and for a brief while had 100% of my 401K in the stock but then "diversified" across several mutual funds after reading all those financial publications about "spreading the risk". Had I kept 100% in DHR, I would have caught all of this 20% compounder.

2) Going into the crash of 2008, I was late in buying as much BRK as I should have. I was doing spoon fulls instead of backing up the truck.

[Palantir]

No major mistakes yet, but I'm only 2 years into the game.

 

- Buying a stock only because it was a net net, trading at a big discount to stated assets.

- Not adding more to positions after declines. Must have confidence!

 

[LongHaul]

Retail has been some of the worst for me.  I had avoided retail until I had ~10 yrs of experience under my belt  I thought my hard work and research would help me understand the retailers.  Totally wrong and overconfident!  What I didn't understand fully about small retailers was the following:

 

1.  They can almost evaporate overnight.  Competition can come in, mgmt can misexecute or the economy can tank and their earnings go to losses very quickly.  Their track record of great results is almost meaningless.

 

2.  The leases are really off balance sheet capital which they are "renting" from the landlord.  Retail really is a capital intensive industry but many retailers just lease and operating leases are not on the balance sheet.  And those lease payments are fixed costs and the retailer is liable for the remaining leases.  Essentially retail can be highly levered. 

 

3.  Undifferentiated products which means competitive environment is extremely brutal.

 

4.  History of retailing is of many, many failures.  Tough business.

 

I just completely avoid them now.

 

 

[Uccmal]

No major mistakes yet, but I'm only 2 years into the game.

 

 

Keep at it, they will come.

 

I have two big mistakes excluding stocks of omission.

Nokia

As a swede I thought Nokia was a great buy at 9 euros. And just bought because of old memories. Now I try to stay away from my "home market Nordic countries" as much as possible.

HPQ

Second mistake was HPQ also just bought at $37 was thinking Glenn Greenberg had my back as he had a 4.5% stake. My lesson from that was I need more conformation then just one guy and wait until a opportunity presents it self. And only when the stars align up do I invest.   

 

I did the same thing with Rimm which is headquartered 30 miles away.  Went as far as selling puts, which I had to buy back.... dumb, dumb, dumb.  And you know my inner voice kept telling me this probably wasn't the best idea.  But did I listen no, no, no.  But I was sold out by the time FFh joined the fray and really pushed the stock down.  As a result 2011 was my only down year in the past 10. 

 

Others: there are so many - Caribou resources - the CEO, bless her soul was buying until the day before they filed for bankruptcy - evidently she thought the reserves were real too.  That ended using insider buying as a signal.

 

FBK/sfk - cyclical in flux and held by FFH - stay away from anything controlled by FFh that is not an insurance sub.  i.e. I did well on Northbridge and really well on ORH. 

 

Lindsey Morden Cunningham , whatever it was called.  Another FFH sub.  An adjuster company.  It ruined a few careers in the FFH stable. 

 

These days, if FFh invests in something In a potential control situation I stay away.  Better to invest in the mother ship. 

 

And then there was the "thats a good technological idea" collection, in alt power, card readers, and an assortment of others

 

Things I no longer do as a result of my learnings: (I post this as much to remind myself as to feed the thread)

1) Invest in o&g exploration firms.  For all the bugger ups out there it is just easier to buy XOM.

2) Invest where the technology is unpredictable out more than a year or two.

3) Invest in things in secular decline (pulp and paper/newsprint comes to mind right now)

4) Invest in great ideas - If an idea is really great you can guarantee GE will get into it and they pay a dividend.

5) Invest in things where I cant get a reasonable handle on the inputs and outputs.  The antithesis of this is a well run bank where the input is money, and the output is generally more money.  Same with insurance. 

6) Keep it simple.  Need some cash flow, buy a dividend paying stock instead of gambling by selling puts. 

 

When I analyze all the screw ups I realize that they can be summed up as things Warren would not buy.  Most of the holdings of Berk. show me where to invest.  With a couple of glaring exceptions (BYD) Berk.  buys companies that are generating cash when he buys them. 

 

Funny thing is I have never invested in mining.  I ascribe to the axiom that a mining company is a hole in the ground with a liar on top.  Something to do with starting my career when Bre-x was unfolding. 

 

[Mikenhe]

No major mistakes yet, but I'm only 2 years into the game.

 

 

Keep at it, they will come.

.

 

;D

I'll second that motion!!!

[Partner24]

1- Not trying enough different views of value investing. Have bought some very good jockey "permanent" stocks and quality companies, and the results were good, but I should have tried some cigar butt and very small promising companies that were under the radar. Warren would buy those under the radar small stocks if he were not managing a mammoth portfolio. So the new investments are companies like that. Let's see what happens over the next 5 years. Stay open minded, try and see. That's the lesson here.

 

2- Some omission mistakes like Dicks Sporting Goods, Marvel, etc.

 

3- First Marblehead. Fortunately, I pulled the plug fast enough so the loss has been moderate.

 

4- Fairfax call options when they were dirt cheap. It was by far the biggest opportunity cost, but I put it in the 4th rank since I do not like to speculate on short term price movements.

 

Cheers!

[savant]

 

 

1) I worked for Danaher(DHR) and for a brief while had 100% of my 401K in the stock but then "diversified" across several mutual funds after reading all those financial publications about "spreading the risk". Had I kept 100% in DHR, I would have caught all of this 20% compounder.

 

 

longinvestor - any suggested reading on Danaher that details the story of the Rales brothers?

 

Thanks

[SharperDingaan]

Wax in our ears; 'cause we know better than EVERYBODY else!

We would like to think that we have finally cured it ... but every now & again it makes an appearance - kind of like the clap!

 

SD

[Guest longinvestor]

 

 

1) I worked for Danaher(DHR) and for a brief while had 100% of my 401K in the stock but then "diversified" across several mutual funds after reading all those financial publications about "spreading the risk". Had I kept 100% in DHR, I would have caught all of this 20% compounder.

 

 

longinvestor - any suggested reading on Danaher that details the story of the Rales brothers?

 

Thanks

 

I don't have anything to point you in a specific direction. You can probably get some stories doing a web search. It is unsurprising though that there is not much out there, they tend to stay out of headlines. The 20% compounding for 25 years does the talking, doesn't it?.

 

 

[Pauly]

My first post after officially joining the board so I guess I'll start by writing my confession here:

 

RIG : Bought not too long after the Mocando spill. Figured the market was punishing Transocean too severely and once BP was thrown under the bus it would be smooth sailing for RIG. Well, after 3 years of disappointment and growing disgust with management I finally swallowed a 20% loss.

 

Mocando dragged the whole industry down and rather than putting my money with one of the guilty parties I should have looked at who else was being punished just by association...maybe I would have gone with SDRL.

 

COCO : Jeez, I don't know what I was thinking with this one.  Again, figuring that legal pressure would ease up and let Corinithian Colleges return to its former 'glory' I bought in at about $5 thinking it couldn't go much lower (it had recently been at $20+). The financials looked decent and the P/E was obscene. I'm sitting with a 60% haircut at the moment. It's a very small position dollar and % wise so now I'm just letting it sit in my account as an unpleasant reminder that a great company at a fair price is much, much better than a horrible company at a terrific price.

 

Paul

 

[Cunninghamew]

I make a new mistake about every day, but towards the end of college I pretty much wiped an acct of mine clean. 

 

A little background... I got very lucky from 2004-2007. I started investing (gambling) a small amount of savings I had from highschool and was fortunate to compound that capital quickly (no reason other than sheer dumb luck). For example, I made a killing (in teenager terms) off of ELN (Elan Pharma) in 2005. I bought the stock after its lead drug Tysabri killed a few people in trials. The drug ended up getting approved with a black box label and was probably like a 5x bagger for me. The first E&P I ever purchased, MHR was acquired at a nice premium by Cimerexx (note MHR has been reincarnated agian).

 

The point is I got lucky off the start. We were in a bull market and it felt like everything I touched made money. I wanted more and so I started to read about and trade options. The options trading started in earnst around 2007 for me and I focused almost exlusively on out of the money options in the E&P space. I was buying near dated OTM calls on a lot of E&P names around earnings and conferences when I thought they would announce well results.

 

I racked up what was a ton of money for a college kid (me at least) in my options account ($ thousands) and when commodities peaked in mid 2008 I lost it all in about 2 months. I litterally took it about $200.

 

Needless to say I was a speculator not an investor.

 

Big lesson learned: Dont mistake luck in a bull market for skill

 

I still wonder today if any of my ideas would qualify as an investment to Ben Graham or if he would say they are sepculation.

[constructive]

Shortly after I began stockpicking in 2008, I bought some "cheap" Chinese companies in 2009 which I found using screens. I figured my ignorance about them would cancel out in the aggregate since I diversified with several small positions.

 

And it was initially very successful. They began shooting up, often making the largest daily gain list. This was the worst thing that could happen, since it generated confirmation bias.

 

As 2010 and 2011 wore on, the Chinese small cap space was increasingly wracked by allegations of fraud. I ignored the signs that the problems in Chinese small caps were systemic. Finally an analyst released a damning report on China Integrated Energy which used video evidence to show that their operations were fake. At that point I realized my error and exited all my positions. It was not a large dollar loss but it was embarassing and a substantial wasted opportunity cost.

 

I don't worry that much about mistakes of omission. Maybe once I get mistakes of commission tamed it will be time to tackle those.

[Palantir]

No major mistakes yet, but I'm only 2 years into the game.

 

 

Keep at it, they will come.

.

 

;D

I'll second that motion!!!

 

I avoided a lot of the "beginner" mistakes that people have cited partly because I played with mock portfolios for a few years while paying off student loans. I highly recommend beginners do the same.  :) Better to invest in sketchy Chinese microcaps with fake money rather than real.

[treasurehunt]

Hmm, which of my many whoppers should I pick? Choices, choices... :-)

 

I think I will go with my repeated purchases of Level 3 stock, an affliction that started in 2001, continued intermittently for several years and only ended early last year when I sold the last of the shares I owned. There were quite a few lessons here, such as (i) pay a lot of attention to debt levels; (ii) do not pay too much attention to smart and articulate CEOs; (iii) confirmation from smart investors such as Mason Hawkins and Prem Watsa is no guarantee of investment success; (iv) a compelling story does not necessarily make for a good investment; and (v) huge overcapacity in an industry can throttle even good companies in that industry. But the most fundamental lesson for me was that I should focus on companies with a track record of making money in industries that are not undergoing rapid change.

 

On the plus side, I feel much cleaner now that I no longer own LVLT. And the stock hasn't tripled since I sold. Not yet, anyway...

[Libs]

Great thread.

 

I lost 25% of my net worth in one day ~2002. I believe the stock was named ASW or ACLN.

 

They supposedly sold used European cars in Africa....but in fact it was an arms-smuggling operation. I kid you not. There were red flags everywhere that I ignored. Herb Greenberg had writtten several bearish articles which I also dismissed.

 

I believe it was the only stock delisted for fraud from the NYSE in the last 25+ years.

 

It could have been even worse; I was staring at my screen in disbelief as the stock plummeted, and at just that moment we had a fire alarm go off in the office. I had to leave. What to do? A friend said: Just sell it; you can buy it back later if it turns out the allegations are untrue.

 

I sold, and it subsequently went to zero.

 

So, yeah, I had 40% of my portfolio in an arms-smuggling operation and lost 60% on it. What a rube I was. The phrase "Too good to be true" has been seared into my brain ever since.

[cubsfan]

Great thread.

 

I lost 25% of my net worth in one day ~2002. I believe the stock was named ASW or ACLN.

 

They supposedly sold used European cars in Africa....but in fact it was an arms-smuggling operation. I kid you not. There were red flags everywhere that I ignored. Herb Greenberg had writtten several bearish articles which I also dismissed.

 

I believe it was the only stock delisted for fraud from the NYSE in the last 25+ years.

 

It could have been even worse; I was staring at my screen in disbelief as the stock plummeted, and at just that moment we had a fire alarm go off in the office. I had to leave. What to do? A friend said: Just sell it; you can buy it back later if it turns out the allegations are untrue.

 

I sold, and it subsequently went to zero.

 

So, yeah, I had 40% of my portfolio in an arms-smuggling operation and lost 60% on it. What a rube I was. The phrase "Too good to be true" has been seared into my brain ever since.

 

Now THAT is a great story!

[rjstc]

Hmm, which of my many whoppers should I pick? Choices, choices... :-)

 

I think I will go with my repeated purchases of Level 3 stock, an affliction that started in 2001, continued intermittently for several years and only ended early last year when I sold the last of the shares I owned. There were quite a few lessons here, such as (i) pay a lot of attention to debt levels; (ii) do not pay too much attention to smart and articulate CEOs; (iii) confirmation from smart investors such as Mason Hawkins and Prem Watsa is no guarantee of investment success; (iv) a compelling story does not necessarily make for a good investment; and (v) huge overcapacity in an industry can throttle even good companies in that industry. But the most fundamental lesson for me was that I should focus on companies with a track record of making money in industries that are not undergoing rapid change.

 

On the plus side, I feel much cleaner now that I no longer own LVLT. And the stock hasn't tripled since I sold. Not yet, anyway...

 

Your post mirrors almost exactly my experience with LVLT except I got out a few years earlier.

[wachtwoord]

I bough RIM shares at 40$ and sold at 14$.

I bought RIMM at $46 and $26 and am still holding. They're worth more than $8 but a lot less than my average buy price. I overestimated the moat and was drooling too much over the metrics (ROE, ROA, net cash, no debt, FCF yield). When revenues decline so extremely that offers no protection ...

[plato1976]

A few years ago I bought quite some resource stocks at the cycle peak ; I thought the PE was really low and then 2008 comes...

I also bought some radio stocks with high leverage and one yellow page company - those were in secular decline and high leverage killed equity - most of them went to zero essentially

 

Another mistake is I was too conservative at 2009 low - looking back I still don't think it's a mistake to prepare for a depression - but obviously I should buy some performing loan in 2008 (chinese chem-petro loan was generating 20%+ at a time in 2008); I may should have bought some really high quality stock without much debt back then.

 

Buying Apple at $700... yes, I'm that idiot... Then I started speculating to try to make up the loss and ended up digging a deeper hole. My taxable account was down nearly 10% and Roth IRA was going nowhere for the first 5 months of the year. I started investing a year ago, knowing nothing about value investing or security analysis. I'm glad I screwed up because that motivated me to learn about value investing. Surprisingly, my taxable is now positive for the year and my Roth is outperforming the S&P500.

[woltac]

Luckily, my biggest mistakes were when I started investing and had minimal funds to invest.

 

1. Media Logic - a company that manufactured machines that "verified" 3.5" computer disks - no sustainable business plan. 

 

2. Gainsco Insurance - fraud allegations against the founder sent the stock plummeting.

 

3.  Not buying BRK.A at $18,000 when it would have taken all of my invested funds to buy one share. 

[Potato]

Hard to pick just one mistake, there are so many... so I'll relate the tale of Yellow Pages/Yellow Media where I made two mistakes in one!

 

The first mistake was of course buying it in the first place. It looked so beaten up to me in 2008/2009 versus the historical cash flow. I had avoided it for years because I believed the business model was dead, and took the continued survival and modest decline in revenues to mean that I was wrong on the whole internet thing (rather than just being early). There were many who could have pointed out that there was no margin of safety in the equity.

 

One reason I bought was the new mini-webpages they were creating for the online listings: they looked interesting and many local restaurants were using them to post their menus along with the regular yellow pages ad. Then after I was already down about 40-50% I went looking for a place to eat and found the wrong menu linked to a restaurant's mini-webpage. I searched through hundreds of restaurants and found a dozen or so such errors -- a major problem in their digital offerings. I should have sold the very next morning and taken my licks, but for reasons that I can't bring to mind, managed to convince myself it was all priced in and would get fixed, and held on right through to the dividend cut.

[alwaysinvert]

My biggest mistake was buying convertibles in an oil prospecto yielding 11% at below par right after issuance. I thought I got a cheap option on the low oil price with a very nice coupon attached to it. This was in early '09. Actually going through the financial statements properly and reviewing management's track record didn't occur to me until later. I sold out in September the same year after getting more and more spooked by management behavior. Things I obviously should have noticed much, much earlier. Result? +64%.

 

The company has since raised capital multiple times, changed CEO a couple of times, done a couple of reverse splits and the convertibles were forcibly converted into common stock, diluting the common by 90%. Needless to say the stock is down 99% since '09. Lucky break, heh.